Plaza Centres' financials boosted by the new wing

Plaza Centres plc kicked-off the interim reporting season this week. It was the first company to issue its June 2009 half-year results on Monday afternoon with HSBC Bank Malta and Malta International Airport expected to publish their interim financial statements tomorrow and both companies holding meetings for stockbrokers to explain in further detail the operational performance and strategic direction going forward.

A 1,200 sqm extension to the commercial centre on Tower Road was completed in April 2008 and as such, the 2009 first half results show a full six-month period of new rental income from this additional area. The company's revenue climbed by 12 per cent to €0.98 million, an increase of €104,529 while operating costs only increased by just under €10,000 or eight per cent to €134,339. This helped Plaza's earnings before interest, tax, depreciation and amortization to climb by almost €95,000 (12.6 per cent) to €845,039.

The new extension however also impacted the charge for depreciation as this increased by €17,000 (11.8 per cent) to just under €163,000. This resulted in an operating profit of €682,045, an increase of 12.8 per cent over the results for the first half of 2008. Net finance costs increased as the company drew from existing short-term banking facilities to partly finance the extension of the new wing as well as the refurbishment of the four retail floors. Plaza's pre-tax profit during the first half of 2009 amounted to €0.65 million, 9.7 per cent above the profit generated in the comparative period last year.

The tax charge increased to €0.24 million leaving a profit for the period of €0.41 million. Shareholders' funds as at June 30, 2009 of €19.77 million are slightly below the December 2008 year-end figure as the company accounted for the profit of €0.41 million in the first half while on the other hand the figure also reflects the dividend payment of €0.74 million effected in April 2009 following approval at the annual general meeting.

These results are testament to the benefits derived to the commercial centre on extensions adjacent to the present building since these do not require any significant additional capital expenditure.

In the 2009 half-year report the company explained that it had received the full development permit from the Malta Environment and Planning Authority of phase three of the company's extension project related to a 1,600 sqm addition split up into four floors of retail and five floors of office space.

This additional space on Bisazza Lane is also adjacent to the current complex and should have a similar financial benefit to the company with revenue increasing at a higher rate compared to its cost structures. Works on the construction of this latest wing are expected to commence during the fourth quarter of 2009 and in a recent media interview CEO Lionel Lapira stated that the additional rentable area should be completed by Christmas 2010.

The financial benefit to the company and eventually to shareholders by way of dividend distribution will therefore show up during the 2011 financial year. In fact during the same interview which was published on June 3, the CEO stated that the company had already received sufficient requests to lease the majority of the new area being created as a result of the Bisazza Lane extension. While the company prefers not to enter into lease agreements "on plan", this shows the potential for the company to maintain very high rates of occupancy (99.26 per cent in the first six months of 2009) despite increased capacity.

During the first half of 2009, Plaza Centres plc also carried out a refurbishment of the retail area spread over four floors as well as a rebranding exercise. These two projects coincided to reflect the new lease of life given to the destination after 15 years of operation. The facelift to the retail areas was also reflected in the new colour scheme and logo of the company. The large icon included in the logo is in the form of a curved P which according to the company reflects Plaza's objective of reaching out to its various stakeholders. However, one can also view this symbol as representing a company "on the move" as Plaza seeks to take advantages of any local opportunities for expansion.

In fact in the 2009 annual report, chairman Albert Mizzi had indicated that the company remains on the look out for new opportunities on the local market. These views were replicated by the CEO in the June 3 interview. However, this possible expansion was not mentioned in the 2009 half-year review, possibly in view of the company's cautious approach given the current economic environment and the possible consequences on demand for retail and office space. Apart from the extension to the current complex, the company's expansion plans could be either in the form of a shareholding in a competing destination (in the immediate vicinity or in other areas in the words of the CEO) or alternatively by taking over the management of other similar centres.

With the directors anticipating no major change in the company's performance during the second half of the year, Plaza is on course for another record financial year. The company has already posted record profits for five consecutive years as costs have only minimally increased while rental income on the retail and office units have risen at higher rates.

Should the company maintain its policy of distributing almost all profits by way of dividends to shareholders, the 2009 dividend to be distributed in April 2010 is likely to be hiked again from the last distribution which amounted to €0.122 per share gross of tax. Therefore the gross dividend yield on the last traded price in the market of €1.65 per share is likely to increase further from the already rewarding historic yield of 7.4 per cent per annum.

Mr Rizzo is director of Rizzo, Farrugia & Co. (Stockbrokers) Ltd.

Rizzo, Farrugia & Co. (Stockbrokers) Ltd, RFC, is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.

Sign up to our free newsletters